Q4 2023 Earnings Summary
- Significant Increase in Orders and Accelerating Pipeline: Orders grew from $1.9 billion in Q3 to $2.4 billion in Q4, reflecting strong demand and an acceleration in the pipeline globally. Management is positive about this trend and expects the increased velocity in the pipeline to continue, indicating robust opportunities ahead.
- Record Backlog Providing Revenue Visibility: Backlog increased by 16% to a record high of $5.5 billion, which management finds encouraging and a positive indicator for future growth. This strong backlog supports sales in 2024 and beyond, providing confidence in achieving long-term revenue targets.
- Maintained Positive Pricing Dynamics Supporting Margins: The company expects to sustain a positive price/cost environment with no anticipated price declines in orders year-over-year, which should support margins and profitability improvements going forward.
- Telecom capital expenditures remain tight, and the segment is expected to remain slow without imminent technology cycles to drive growth, potentially limiting Vertiv's opportunities in this market.
- Shipment delays in the EMEA region due to customer site readiness issues may negatively impact revenue growth and pose challenges in meeting sales expectations in that region.
- Potential rapid changes in material costs and concerns over material inflation could affect profit margins if prices increase unexpectedly. The company is mindful that things can change rapidly in this area.
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AI-Driven Demand and Liquid Cooling Capacity
Q: How much of your orders are AI-driven, and are customers preferring direct-to-chip or immersion cooling?
A: It's difficult to precisely quantify AI-driven orders, but we're very happy about the trajectory of our backlog and pipeline related to AI. Most data centers are hybrid, hosting both CPU and GPU configurations that change over time. We see more preference for direct-to-chip cooling among customers. -
Pricing and Cost Expectations for 2024
Q: Are your price gains sustainable in 2024 given the projected $60 million net savings?
A: While we expect marginal price gains to diminish due to the changing inflationary environment, we remain confident that pricing will continue to be positive. We operate in a favorable demand-supply environment, so we continue to count on price contributing to our results. -
Backlog Growth and Orders Outlook for 2024
Q: Do you expect orders and backlog to grow in 2024?
A: Yes, we believe orders will grow in 2024. We have a strong pipeline, and our backlog increased 16% to $5.5 billion, reaching a record high. We expect deferred revenue to grow, correlating with sales and orders growth. -
Liquid Cooling Capacity Expansion
Q: What does the 45x increase in liquid cooling capacity mean for your business?
A: We're ensuring we have the capacity to meet the industry's direct-to-chip liquid cooling needs. Starting from a low base, we're activating three vertical plants across all continents to support this growth. Our aim is to provide capacity over and above the industry's growth rate in direct-to-chip cooling. -
North America Revenue Guidance
Q: Why is North America growth expected to be high single digits in Q1 despite strong Q4 results?
A: We feel good about our business in North America. The high growth in Q4 was partially due to a particularly strong Q1 last year, coming off pent-up backlog from 2022. This creates a challenging comparison, but our pipeline remains very encouraging. -
Impact of CoolTera Acquisition on 2024 Guidance
Q: How does the CoolTera acquisition affect your 2024 guidance?
A: Our Investor Day vision already included significant acceleration in liquid cooling and AI. The CoolTera acquisition enhances our confidence and speed in executing that plan, but doesn't dramatically change our 2024 guidance. -
Capacity Constraints and Utilization
Q: Did capacity constraints impact your growth in 2023, and how are you addressing this?
A: We do not see capacity as a limiting factor for 2024 or beyond in any material fashion. After opening new facilities in India and Monterrey, we're focusing on gradual expansion by adding lines, shifts, and improving utilization. We're investing more in assembly lines and tools to enhance output. -
Orders Growth Factors and Supply Chain Bottlenecks
Q: Does your 2024 guidance account for potential bottlenecks from customer permitting or your supply chain?
A: We do not see supply chain bottlenecks at our end. The constraining factor is the natural cycle of large projects with relatively long lead times requested by customers. We're working closely with customers to align on timelines. -
Communications Segment Outlook
Q: What is the outlook for your Communications segment in 2024?
A: We continue to believe that the Communications market will be pretty slow, with no imminent cycles driving acceleration. While we don't expect it to shrink, we're prudent in this space in our guidance and future vision. -
EMEA Shipment Delays
Q: Can you explain the shipment delays in EMEA during Q4 and their impact?
A: The delays in EMEA were predominantly due to customer readiness and site readiness, not internal capacity. We believe it's premature to comment on quarterly growth cadence, but we're positive about our pipeline in the region. -
Pricing Trends in Orders
Q: Do you expect any price declines in orders year-over-year in 2024?
A: We do not expect price declines in orders. We believe the pricing environment will remain positive, and this translates into our orders as well. -
Impact of Adding Shifts on Capacity
Q: How does adding shifts affect your capacity across your footprint?
A: Capacity increases involve more than just adding shifts. It's a combination of expanding square footage, improving utilization, and increasing investment. Our Vertiv Operating System enhances productivity, allowing us to utilize available capacity effectively, consistent with what we've shared previously.